1997 (5) TMI 162 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for Modvat credit on inputs from 100% Export Oriented Unit (EOU).
2. Correctness of the amount of Modvat credit taken.
3. Applicability and interpretation of relevant notifications.
4. Imposition of penalty for wrongfully availed Modvat credit.

Issue-wise Detailed Analysis:

1. Eligibility for Modvat Credit on Inputs from 100% Export Oriented Unit (EOU):
The primary issue was whether the assessee's unit at Noida was eligible for Modvat credit on inputs received from their 100% EOU at Daruhera. The relevant provision was Notification No. 177/86 issued under Rule 57A, which restricts Modvat credit on inputs from 100% EOUs to the extent of the additional duty leviable under Section 3 of the Customs Tariff Act, 1975. The assessee argued that they were entitled to Modvat credit equivalent to the additional duty of customs, which was equal to the central excise duty leviable on similar goods produced in India.

2. Correctness of the Amount of Modvat Credit Taken:
The department alleged that the assessee took credit of Rs. 32,94,720/- wrongly in RG-23A Part II and utilized this credit for payment of duty by the unit at Noida. The Collector, Central Excise, determined that the Modvat credit admissible was Rs. 21,70,022.40, and the excess credit of Rs. 11,24,698/- was recoverable. The Collector's order was based on the calculation that the amount of excise duty payable on the goods was 50% of the basic customs duty leviable on like goods under Notification No. 97/91, which was higher than the additional duty of customs.

3. Applicability and Interpretation of Relevant Notifications:
The interpretation of Notification No. 177/86 and Notification No. 97/91 was crucial. Notification No. 177/86 stipulates that the credit on inputs supplied by 100% EOU and used in the manufacture of final products in India shall be restricted to the extent of duty equal to the additional duty leviable under Section 3 of the Customs Tariff Act, 1975. The department contended that since no additional duty of customs was paid by the EOU, no Modvat credit was available. The Tribunal observed that the notification required determining the additional duty of customs as if the goods were imported, irrespective of the actual payment by the EOU.

4. Imposition of Penalty for Wrongfully Availed Modvat Credit:
The Collector imposed a penalty of Rs. 1,25,000/- on the assessee under Rule 173Q and Rule 9(2) for wrongfully availing and utilizing Modvat credit. The Tribunal found that the penalty was on the higher side and reduced it to Rs. 50,000/-. The Tribunal noted that the assessee had taken the excess credit and utilized it with an intent to evade payment of duty on the final product, thus justifying the imposition of a penalty.

Conclusion:
The Tribunal upheld the Collector's order regarding the admissibility and quantification of Modvat credit, finding no legal infirmity. However, it reduced the penalty imposed on the assessee from Rs. 1,25,000/- to Rs. 50,000/-. The appeals were disposed of accordingly, with the Tribunal emphasizing the correct interpretation of the relevant notifications and the necessity to determine the additional duty of customs for Modvat credit eligibility.